What would you do with an extra $500 a month?
Mayor Michael Tubbs of Stockton, California, posed this question to his constituents last year. In February, the city began its 18-month universal basic income (UBI) pilot. Through a privately-funded program, Stockton’s government will distribute $500 on a monthly basis (the first $500, pre-paid debit cards have been sent), no strings attached, to 130 of its low-income residents. Y Combinator, a California-based startup accelerator, plans to launch a similar trial this year in Oakland.
Tubbs knew there would be obstacles in getting this pilot off the ground; he would have to convince people across the political spectrum that it was a good idea. However, there was one segment he did not expect push back from: the people the program intended to help.
“There were conversations I had with folks who are one paycheck away from deprivation saying, ‘We don’t deserve anything,’ so really the challenge has been reshaping the conversation. This is not a handout. This is part of what you get as a citizen of Stockton. You are eligible for this not because you need anything, but because you are a citizen of this city, ” Tubbs explained in an interview last year. He hopes that this program will empower people to have more agency.
Differences Between Stockton’s UBI Pilot and Others
A UBI pilot like this has never been done in the U.S. before, so it’s difficult to hypothesize how the Stockton trial will turn out. While most pilots focus on the quantitative data – how funds are spent, whether employment rates changed, and the like – the Stockton pilot aims to humanize the results. Through surveys, qualitative interviews, and local artists, the city intends to engage participants more deeply and stimulate discussion more broadly.
Humanizing the results: Stockton’s universal basic income pilot participants will be engaged deeply and stimulated by discussion.
Finland recently ended a two-year trial that awarded 2,000 Finns roughly $630 per month, but that was targeted exclusively at the unemployed.
The fact that it targeted exclusively the unemployed is important for a couple of reasons. First, it didn’t teach us how people who have a source of income, especially on the low or irregular end, would treat this extra funding. Second, the Finnish government changed its unemployment laws concurrently with the pilot such that if you could not prove you were actively seeking a job, you lost your government benefits. In the first three months, 94,000 Finns saw their benefits cut.
UBI is not meant to be contingent, and cutting other benefits shifts the financial liability for things like health care back to the individual. In many ways it’s similar to Clinton’s Personal Responsibility and Work Opportunity Reconciliation Act: among other things, it forces the unemployed to accept gig work, and businesses can lower wages because people have to accept a job or risk losing benefits.
The closest thing we’ve seen to a large-scale UBI is the Alaska Permanent Fund, which has been active since 1982. The fund receives most of its capital from the revenue of oil companies operating within the state; each year, payments of equal amounts are distributed to all Alaskan residents (generally between $1,000 and $3,000). A 2018 report found that this cash transfer program did not significantly decrease employment. However, as climate change issues surge, there are growing concerns regarding the source of revenue of the fund. While some board members attempt to downplay the percent of the portfolio invested in fossil fuels, its former Chair William Moran noted last year that “every last cent of the $65 billion initiative is a financial derivative of fossil fuel interests. ” This sends a message that if the price is right, oil companies can buy their way into operation.
The United States already has an antipoverty cash distribution program called the Earned Income Tax Credit (EITC), which is designed to support low-income Americans. The program differs from the UBI concept in several important ways, however. It primarily supports people with children, rather than focusing on individuals. The disbursal amount varies each year, and it is only distributed once a year. This means that recipients never know how much they will receive, and often spend it on overdue expenses. Critics argue the lump sum would be more effective if dispensed in installments.
Given that less than 10 percent of the EITC payout goes into savings account, this points to the critical problem that people still can’t survive on working wages alone. Research by economist Alan Krueger shows that nearly all jobs created since the recession have been contract, part time, or contingent. These types of jobs don’t provide the same benefits as a 40-hour per week role, and it is increasingly less likely that your job will provide the security that it did 20 years ago. Some of the most successful companies in the past decade, including Google, contract more than half of their staff. In combination with the rising concern of job loss to automation, UBI could be an insurance policy for future downturns that require workers to accept less stable short-term or gig positions, especially for those who have dependents, less varied skillsets, or otherwise require a degree of employment stability.
Beyond Income: Work Isn’t Just Monetarily Rewarding
Some scoff at the idea of UBI, deeming it welfare for those too lazy to work and believing it would lead to workforce gaps. However, according to the Economic Policy Institute, nearly 63 percent of poor people in the U.S. who are eligible to work are currently employed full or part time, and many of those who aren’t – about 3.3 million – are actively seeking employment. Furthermore, work is generally not just about a paycheck; unemployment is enormously traumatic, and studies have shown that people find purpose in work. When it comes to poverty, a willingness to work is not the problem, but rather that work itself is no longer the solution. The next big economic idea will have to consider a myriad of factors – from increasing digitization to the ever-expanding wealth gap – to push for a more economically-inclusive society.
The idea of universal basic income isn’t just about social justice – it’s about stimulating economic growth. The United States prospers most when it has a healthy middle class; in 1940, it was almost guaranteed that a child would grow up to have a higher income than his or her parents. By the mid-1980s, that probability was down by about half. When those who have less do better, everyone benefits: health costs go down, innovation goes up, and social mobility improves.
Universal basic income isn’t just about social justice – it’s about stimulating economic growth.
While UBI alone is not a panacea for economic inequality, its time has come as a force for serious and meaningful economic prosperity, and a counter to the ballooning inequality from which the U.S. suffers.